Farmers cannot continue subsidising consumer appetite for cheap food, according to a new report launched at this year’s Oxford Farming Conference.
The report – ‘Is the UK food supply chain broken?’ – names Brexit, the war in Ukraine, the Covid-19 pandemic and soaring inflation rates as the reasons for farming bank balances being at an “all-time, unsustainable low”.
Director of Retail Minds Limited and author of the report, Ged Futter, said these events have exposed pre-existing and fundamental weaknesses in the supply chain.
This means that the level of risk is at an all-time high, he said.
The report is based on more than 40 interviews with business owners across fresh produce, eggs, poultry, pork, importers, frozen food manufacturers and various consultants.
Key findings of the report include:
- The risk versus reward imbalance is forcing farmers out of production; retailers need to share the risk;
- Retailer practices need to change – long term trade agreements, inexperienced buyers and burdensome audits are damaging suppliers’ profit and partnerships;
- Farmers’ accounting and negotiating skills need improvement.
“The risk vs reward ratio is now out of kilter, more farmers are asking is it worth doing,” Futter said.
Retailer tactics
The report identified fixed price, long-term agreements, the impact of inexperienced buyers and the audit burden as having, over the past 10 years, “squeezed every drop of profit from many of their suppliers”.
In one business, an audit was conducted in 42 weeks of the year, with the average cost of an audit with a UK retailer found to be between £2,000-£5,000.
“Retailers would rather have empty shelves then break these deals,” Futter said.
Futter’s report calls for a change of mindset from all stakeholders and suggests ways in which risk can be better redistributed across the supply chain, identifying long-term agreements with built in price mechanisms as a key tool for reducing risk in the future.
Confidence for innovation
At the Oxford Farming Conference, Futter debated the report’s findings with a panel that included deputy president of the National Farmers’ Union (NFU), Tom Bradshaw; senior director of sustainable supply chains at Asda, Chris Brown; farmer at Farmlay Eggs, Robert Chapman; and OFC director, Ali Capper.
NFU deputy president Bradshaw said that a “huge amount comes down to confidence” when farmers are questioning whether they can afford to innovate.
“If there’s not the confidence that you’re going to generate that profit then you’re not willing to reinvest and take that risk,” he said.
He said early adopters dealt with “an abundance of risk” and questioned whether there is a role for the government to step in and “help incentivise uptake of those really early innovations”.
Capper echoed the sentiment, adding that she would “make a plea to government to embrace the complexity of the sector” and recognise that the risks differ so greatly.
“We need policymakers who can wrap their minds around that complexity and stop looking for quick soundbites and quick wins – quick wins are not working for our sector because we’re complex,” she said.
Long-term agreements
On long-term agreements, Chapman said buyers were warned of the egg shortage.
“They didn’t listen…the only thing buyers understand is when there’s a shortage,” he said.
“We went back to our customers and said if you want to have UK eggs you’ve got to invest in the sector.
“We have a three-year rolling deal now. It’s got to be fair to both parties. We’ve got that now and review the price every quarter so everything is taken into consideration.”
With a general election looming, the panellists also discussed whether politicians recognise the strategic importance of domestic food production.
NFU deputy president Bradshaw said: “The language has certainly changed; we hear very regularly that food security has risen right up the agenda but I think we’ve got a wonderful opportunity this year to make sure all political parties demonstrate that they recognise the strategic importance of domestic food production and have a real commitment to delivering more British food at home and abroad.”
Tom warned that if politicians fail to recognise this, then “the policies we need will never be delivered”.
